The Treasury select committee has criticized Lifetime ISAs, suggesting they may lead to poor investment decisions and might not be the most effective use of public funds. The committee finds the rules that penalize benefit claimants nonsensical and believes that Lifetime ISAs, known as Lisas, could have been mis-sold to savers eligible for universal credit or housing benefit.
Introduced by the Conservative chancellor George Osborne in 2017, Lisas allow individuals to save for their first home or retirement, with government top-ups of up to £1,000 per year. However, the committee warns that the dual-purpose design of Lisas might steer savers away from more suitable options.
Dame Meg Hillier, who chairs the Treasury committee, expressed support for the objectives of helping people onto the property ladder and save for retirement, but questioned whether Lisas are the best way to achieve these goals given the substantial public expenditure involved.
Cash Lisas are considered suitable for saving towards a first home but not for retirement savings due to restrictions on higher-risk investments such as bonds and equities.
The committee also noted that current rules make Lisa holders ineligible for universal credit or housing benefit, and recommended that clear warnings be included about the inferior nature of Lisas for such individuals.
Another concern raised was the 25% charge imposed for unforeseen withdrawals, which could indicate the product is not meeting its intended purpose, as shown by the higher number of unauthorised withdrawals compared to home purchases.
Savers can contribute up to £4,000 annually to a Lisa until they turn 50, with exemptions for first-time homebuyers, those aged 60 or over, or individuals with less than 12 months to live due to terminal illness.
Despite the eight-year history of Lisas, only 6% of eligible adults have opened one. The committee questioned the fiscal wisdom of the product and its potential to subsidize wealthier individuals in their home purchases.
Consumer champion Martin Lewis, a long-time advocate for reforming the scheme, welcomed the committee’s findings and called for a reduction in the withdrawal charge and adjustment to the £450,000 house price cap.
